Usage of online payment methods is on the rise. Back in 2023, the number of cashless transactions worldwide amounted to 1.335 billion. This number reflects the positive tendency among consumers to pay for goods, products, and services online.
Such a vast number of payments and, respectively, orders to be processed by businesses makes it necessary to have a system for handling transactional, order, and customer data — a Transaction Processing system (TPS).
In this post, you’ll discover the essentials of TPS, including examples, functions, characteristics, components, and types. Besides, you’ll explore the advantages of using TPS in business and find out for yourself whether you need such a software solution in your web platform or app.
What is a Transaction Processing System?
A transaction processing system (TPS) is a type of information system that collects, stores, modifies, and retrieves the data transactions of an enterprise.
TPS helps to handle the day-to-day business activities that require quick and reliable processing of data for the received and conducted transactions. It’s necessary to process customers’ orders correctly, update inventory, and credit a seller’s account. There’s a subset of TPS known as Online Transaction Processing (OLTP) which deals specifically with online banking transactions.
Important: It’s essential not to confuse transaction processing systems with any form of payment processing payment flow, which is intended for the actual handling of transactions via banking routes.
From a certain point of view, TPS is a form of data management, information-processing software that doesn’t directly participate in handling transactions, but only retrieves and manages customer and business data.
Data from TPS is examined during compliance and security audits. It’s also utilized to enable reporting for Business Intelligence (BI) forecasting as well as for business analysis and higher-level trend examination.
You can discover more about payment processing as well as payment gateways and payment processor roles from another blog post by DashDevs.
Examples of Transaction Processing Systems
Let’s take a look at some of the examples of real-life TPS systems used in different businesses:
#1 Banking ATMs
Automated Teller Machines (ATMs), that handle bank transactions, including cash withdrawals and balance inquiries, must utilize TPS. Using TPS, an ATM verifies the user’s identity, retrieves account information, updates the account balance, and dispenses cash, all in real-time.
#2 Stock exchanges
Complex TPS helps to function financial solutions, such as stock exchanges like the New York Stock Exchange (NYSE). These systems facilitate trades by ensuring order matching between buyers and sellers, updating stock prices based on transactions, and electronically settling trades in real time.
#3 Airline reservation systems
The process of booking a flight online relies on a TPS within an airline reservation system. This TPS checks seat availability, verifies payment information, and generates tickets and confirmation emails.
#4 E-commerce platforms
TPS constitutes a major functionality of e-commerce businesses like Amazon and eBay. When a customer places an order, the TPS handles multiple tasks, including verifying payment details, checking inventory levels, updating stock quantities, and generating order confirmations.
#5 Healthcare management systems
In healthcare settings, especially in telehealth, TPS participates in managing patient records and billing. It ensures that billing is processed correctly, streamlines operations, and reduces possible errors.
It can be concluded that TPS is necessary at all times when a business receives or makes payments and refunds, to ensure that orders are processed correctly and no discrepancies are possible.
You can discover essential statistics for TPS importance and usage in the infographics below:
Functions of Transaction Processing Systems
The functions of transaction processing systems can be distinguished into three main categories:
#1 System runtime functions
These encompass the core of TPS, allowing it to directly perform its role in transaction handling:
- Transaction processing: Efficiently handles the core task of processing and recording individual transactions while maintaining system performance.
- Concurrency control: Ensures multiple transactions are processed simultaneously without conflicts, preserving system stability.
- Preserving data integrity: Maintains the accuracy and consistency of data throughout transaction processing, ensuring reliable information.
- Ensuring data availability: Guarantees that data is always accessible when needed, supporting continuous business operations.
- Preserving security: Protects transaction data from unauthorized access, ensuring data confidentiality and system integrity.
- Generating reports: TPS system is to produce reports summarizing transactions and providing valuable insights, such as sales trends or buyer’s seasonal activity.
Note: Data that can be retrieved from TPS is one most essential business information obtained in the operational processes. By implementing measures of data analytics, companies can retrieve actionable insights from such data, adjusting business strategy upon them.
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#2 System administration functions
These are a suite of capabilities for administrators, allowing them to modify the way TPS operates:
- Configuration: Involves setting up and adjusting the TPS to meet specific operational requirements and business needs.
- Monitoring: Tracks system performance and transaction processing activities to ensure smooth and efficient operation.
- Management: Encompasses the administrative tasks necessary for maintaining, optimizing, and troubleshooting the TPS.
#3 Application development functions
These are developer-centered functionalities, often provided as part of an SDK for building a TPS. App development functions are necessary to build an internal environment for users and developers interacting with a TPS.
- Customization: Offers internal features to tailor TPS to specific business applications, enhancing its functionality and relevance.
- User interface design: Provides tools for designing intuitive and efficient user interfaces, facilitating better user interaction.
- Application management: Includes functions for developing, deploying, and managing applications within the TPS framework, ensuring they meet business objectives.
In case you’re interested in fintech app development services, take a look at DashDevs’ service offerings.
Сharacteristics of Transaction Processing Systems
Transaction processing TP systems, as a technology, exhibits certain features dictated by its role. An effective TPS has the following characteristics:
- Rapid response. Since response times in transaction processing are crucial, a TPS is to maintain constantly short delays. In an effective TPS, processing an inquiry may take less than a second.
- Inflexibility. TPS processes transactions in a standardized manner. It ensures consistency and prevents deviations that could cause errors. So, in the case of a TPS, inflexibility is not really a disadvantage.
- Reliability. TPS hosts essential information that should not be disclosed. It normally has robust backup and recovery procedures implemented to ensure system continuity and prevent operational disruptions.
- Controlled processing. In TPS, data for transactions is handled in alignment with the firm’s structure. It means that there’s a particular order of transferring data for transactions, issuing approvals, providing responses, etc. This preserves data integrity and operational efficiency.
- Real-time processing. As stated above, TPS’ response time is expected to be as short as possible. That’s why such a technology processes the recording of transactions and data transfer in real-time.
- Concurrency control. Concurrency control mechanisms ensure that concurrent transactions are processed correctly and do not interfere with each other. It notably reduces possible instances of data inconsistencies.
- ACID properties. Atomicity, Consistency, Isolation, and Durability (ACID) properties are known as essential properties of a transaction. TPS ensures that every processed transaction adheres to all four properties, meaning that they must be treated as atomic units, maintaining consistency and integrity.
- High throughput. TPS is intended to manage a large number of business transactions effectively, making it ideal for businesses with high transaction volumes. This high throughput capacity guarantees that the system can properly handle the workload while maintaining performance and reaction times.
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Components of Transaction Processing Systems
TPS architecture includes the following main components:
- Input data. In a TPS, bills, invoices, coupons, and all types of orders like purchase orders, are treated as input data generated during the actual payment processing. Input data serve as the initial data or instructions that trigger particular actions within TPS. It’s also transferred and stored within the system.
- Database. A database or a storage system lies at the core of a TPS. It stores information about transactions, including both input and output data. The database has easily navigable directories and comprises information for consumers, goods, employees, and financial transactions. Essentially, the database serves as a central repository for critical data management.
- Processing system. The processing unit within the TPS is what interprets and validates the accuracy of input data. The Processing system completes tasks like calculating order totals, updating inventory levels, validating customer information, and generating invoices. It also creates a useful output.
- Output. A TPS can produce an output representing the outcomes of the transaction. Reports can be retrieved both automatically and manually. These outputs might include confirmation messages, printed receipts, updated customer accounts, or email alerts. Such information is utilized for record-keeping, data analysis, tax reporting, and other official business purposes. Reports retrieved for further analysis are also considered as an output.
TPSs can vary in their complexity and functionality, depending on business requirements. However, these four components are always present.
Types of Transaction Processing Systems
TPS can be distinguished based on how they handle transactions. There are two main types of TPS:
Real-Time Processing TPS
Real-time processing or stream processing TPS process transitions as they occur. They enable to provide almost immediate updates and responses, with processing delays attributable to the system’s technical capability only. When a customer purchases something online they receive confirmation and a receipt almost immediately. That’s when a real-time processing TPS is involved.
Real-time processing TPS are typically used when up-to-the-minute data is necessary, such as:
- Online banking transactions
- Stock exchanges
- Reservation systems
Batch Processing TPS
In the case of batch transaction TPS, data for business transactions is grouped in batches of a predefined size, and processed periodically. By correlating batch size with the desirable periods of processing or by defining particular periods of processing, admins can regulate how batches are processed.
Batch processing systems are often used for tasks that are not time-sensitivity and can be accumulated for some time, such as:
- Report generation
- Payroll processing
- Sending out invoices
It’s possible to use a hybrid of real-time and batch transaction processing approaches. This way, for example, transaction confirmation can be managed in real-time while automated reports are generated in batches over defined periods of time.
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Advantages of Using Transaction Processing Systems
It’s hard to imagine an organization that deals with direct payment processing, yet, doesn’t have a TPS on board. Here are the beneficial aspects of using TPS, especially comparing it to a potential alternative in the form of handling transactional data manually:
- Increased efficiency and productivity: Transaction processing systems take over repetitive tasks. This boosts the overall efficiency and productivity of the workforce that would have had to handle the input and output manually otherwise.
- Improved accuracy and reduced errors: With automated data capture and validation, TPS systems greatly reduce the chance of human errors. This ensures that the financial records are always accurate.
- Cost Savings: Implementing TPS systems leads to cost savings by minimizing manual labor involved and reducing the likelihood of costly errors.
- Improved Scalability and Growth: TPS systems are designed to grow with business. They handle increasing transaction volumes, which benefits scalability without compromising performance.
- Global Reach: Transaction-processing systems enable businesses to achieve global reach. It facilitates handling transactions across different regions and currencies effortlessly.
- Durability and audit trails assistance: TPS ensures that all business transactions are securely recorded, easily traceable, and can’t be lost even in the case of system failure. It helps to address compliance and review concerns. Transaction history record also serves accountability and analysis purposes.
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Final Take
Transaction processing systems are necessary for efficient and reliable business operations. By automating repetitive tasks, TPS enhances productivity, reduces errors, and supports scalability. Investing in a robust TPS ensures that businesses can meet growing demands, maintain data integrity, and achieve global reach, ultimately leading to cost savings and improved operational efficiency.
Here at DashDevs, we have substantial experience implementing fintech solutions, including TPS, in business. With more than 13 years of experience and over 500 projects under our belt, we can deliver solutions to your needs with flying colors.
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